The Competition and Markets Authority v Pfizer Inc.
| Jurisdiction | England & Wales |
| Judge | Lord Justice Green,Sir Stephen Richards,Sir Geoffrey Vos |
| Judgment Date | 10 March 2020 |
| Neutral Citation | [2020] EWCA Civ 339 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: C3/2018/1847 & 1874 |
| Date | 10 March 2020 |
and
and
[2020] EWCA Civ 339
Sir Geoffrey Vos, CHANCELLOR OF THE HIGH COURT
Lord Justice Green
and
Sir Stephen Richards
Case No: C3/2018/1847 & 1874
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM Competition Appeal Tribunal
Peter Freeman CBE QC (Hon), Paul Lomas, Professor Michael Waterson
1275/1/12/17
Royal Courts of Justice
Strand, London, WC2A 2LL
Ms Kelyn Bacon QC and Mr Tom Pascoe (instructed by Macfarlanes LLP) for Flynn.
Mr Mark Brealey QC, Mr Robert O'Donoghue QC and Mr Tim Johnston (instructed by Clifford Chance LLP) for Pfizer.
Mr Mark Hoskins QC, Mr David Bailey, Mr Hugo Leith and Ms Jennifer MacLeod (instructed by the Competition and Markets Authority) for the CMA.
Mr Nicholas Khan QC and Mr James Bourke (instructed by the European Commission Legal Service, assisted by Langleys Solicitors LLP) for the European Commission.
Hearing dates: Tuesday 26 th — Thursday 28 th November 2019
Approved Judgment
A. Introduction
The appeal: Excessive and unfair pricing as an abuse of a dominant position
This case raises important points of law concerning the test to be applied to determine when prices charged by dominant undertakings for goods or services amount to the abuse of a dominant position, as to the nature of the duty upon a competition authority to evaluate evidence adduced by an undertaking in its defence, and as to the powers of judicial bodies called upon to hear appeals from such authorities. The subject matter of the appeals concerns the pricing of pharmaceutical products and affects the sums paid by the public purse for drugs. But the case is of wider application because the legal issues apply to all goods and services in the economy. I have read the judgment of the Chancellor of the High Court and agree with it.
The appeals are from the judgment (“ the Judgment”) of the Competition Appeal Tribunal (“ the Tribunal”) dated 7 th June 2018 which set aside a decision (“ the Decision”) of the Competition and Markets Authority (“ CMA”) dated 7 th December 2016. The Judgment has been considered widely at the international level and has been specifically commented upon in a 2018 Paper prepared by the OECD.
The parties
The parties are as follows.
The CMA is the competition authority in the United Kingdom with jurisdiction to enforce the Competition Act 1998 (“ the CA 1998”) and Article 102 TFEU (“ Article 102”) which prohibit the abuse of a dominant position. It is the principal appellant in this case and challenges the Judgment upon the basis that the analysis therein of the test for “ abuse” is wrong in law. It is a respondent to the appeal by Flynn Pharma Limited and Flynn Pharma (Holdings) Limited (see below).
Flynn Pharma Limited is a company that sells and markets pharmaceutical products. It specialises in acquiring and rescuing “ tail-end” or “ end-of-life” pharmaceutical products which are mature drugs with declining demand. It is a wholly owned subsidiary of Flynn Pharma (Holdings) Limited. These companies are referred to as “ Flynn”. It is a respondent to the appeal of the CMA but is also an appellant in relation to certain findings in the Judgment which it argues are either inconsistent or vitiated by a failure to give adequate reasons and it argues that in so far as the Tribunal has made findings of fact which upon remittal bind the parties then it has erred in law.
Pfizer Inc. is a research-based global pharmaceutical company. Pfizer Limited is a UK based subsidiary of Pfizer Inc. It develops, manufactures and markets pharmaceutical products globally, including in the UK. These companies are referred to as “ Pfizer”. Pfizer was a respondent to the appeal of the CMA.
The Commission of the European Union (“ the Commission”) is an intervener and appears in order to support the CMA in relation to issues of law and practice. It takes the position that the Tribunal erred in law in its articulation of the test for abuse of dominance and argues that if the law is as laid down by the Tribunal it would be impracticable and unworkable.
The proceedings
The CMA commenced an investigation into Pfizer and Flynn in May 2013. The scope of this investigation initially concerned potentially anti-competitive agreements between Pfizer and Flynn under both section 2 CA 1998 and Article 101, and an abuse of a dominant position by Pfizer under both section 18 CA 1998 and Article 102. The investigation into potential infringements of section 18 CA 1998 and Article 102 was extended to Flynn in February 2014. The relevant parts of section 18 provide:
“18 Abuse of dominant position.”
(1) … any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the United Kingdom.
(2) Conduct may, in particular, constitute such an abuse if it consists in—
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
…”
The prohibition in section 18 is known as “ the Chapter II prohibition”. Article 102 is, mutatis mutandis, identical save only that for it to apply there must be a proven effect upon trade between Member States. Article 102(a) is identical in terminology to section 18(2)(a) CA 1998. The seminal case on the test for abusive pricing is the judgment of the Court of Justice in Case C-27/76 United Brands v Commission EU: C:1978:22 (“ United Brands”).
The Decision found that Pfizer and Flynn had abused their dominant positions in the UK market for phenytoin sodium capsules under both the Chapter II prohibition and Article 102. It imposed a penalty of £84,196,998 upon Pfizer and £5,164,425 upon Flynn. The abuse comprised of Pfizer and Flynn intentionally or negligently charging excessive and unfair prices for the capsules. The Decision included directions (“ the Directions”) requiring Pfizer and Flynn to reduce their prices.
On 23 rd December 2016 Flynn applied unsuccessfully to the Tribunal for interim relief to suspend the Directions pending appeal. Between January and April 2017 Pfizer and Flynn reduced their prices to comply with the Directions.
On 7 th February 2017 Pfizer and Flynn lodged appeals in the Tribunal against the Decision. The hearing occurred over 13 days between 30 th October 2017 and 24 th November 2017.
The Tribunal handed down the Judgment on 7 th July 2018: [2018] CAT 11. It found that: (i) the CMA had correctly identified the relevant geographical and product markets; (ii) Pfizer and Flynn were dominant in those markets; but (iii), the finding of abuse in the Decision was vitiated by errors of law and fact. The Tribunal quashed the Decision and made an order under paragraph 3(2)(a) of Schedule 8 CA 1998 for remittal in the following terms:
“The issue of abuse and any consequential matters, including penalties and directions, are remitted to the CMA for reconsideration in accordance with the Judgment.”
The CMA sought permission from the Tribunal to appeal to the Court of Appeal, as did Flynn on points arising from the Judgment which it considered would prejudice it upon the remittal, as well as each of Pfizer and Flynn in respect of elements of the Judgment. Permission to appeal was refused to all parties on 25 th July 2018: [2018] CAT 12.
All parties applied to the Court of Appeal for permission to appeal. Leave was given to both the CMA and Flynn (on certain of its arguments) by order on 12 th December 2018. Subsequently, the CMA sought to raise additional issues of law in particular addressing arguments it had conceded before the Tribunal. The Court of Appeal granted permission to the CMA to amend its Grounds of Appeal to raise these new points upon the basis, inter alia, that the issues arising were of considerable public importance not only to the correct approach to be adopted to the pricing of pharmaceutical products, but more generally: See [2019] EWCA Civ 1631 (4 th October 2019).
Under section 49 CA 1998 appeals lie to this Court on issues of law only. The Court has received detailed written submissions on all the issues arising. In addition, the parties placed 3 volumes of economic literature before the Court and have referred to this in support of their submissions. All the parties provided extensive and helpful written and oral submissions on the matters of law arising but also upon related issues of procedure and practice and upon the economic literature.
B. The Facts
The basic facts are set out in the Decision and in the Judgment: see Judgment paragraphs [12] – [68]. I summarise them briefly below.
Phenytoin Sodium
Phenytoin sodium is an anti-epileptic drug (“ AED”). It was first synthesised in 1908. It is available in a variety of forms, including capsules and tablets. It is used in the control of the frequency of epileptic seizures. A phenytoin sodium capsule was first commercialised and marketed in the UK in 1938 under the brand name “ Epanutin”. The capsule is available in four strengths: 25mg, 50mg, 100mg and 300mg. The tablet form is available in 100mg strength only.
In 2000 Pfizer acquired the US pharmaceutical company Warner-Lambert whose portfolio included Epanutin and thereafter Pfizer held the Marketing Authorisation (“ MA”) for the capsules enabling the company to supply pharmacies in the UK. It manufactures the capsules in Germany. In 2012 Flynn acquired the MA for capsules, as part of the agreements entered into between Pfizer and Flynn.
Phenytoin sodium has a narrow therapeutic index...
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